Family Finances: Temper the approach, tweak the portfolio

Exceptions to the investing norm are hard to come by. This is what makes the doctor couple—Ritesh Singh, 33, and Tanushree Chakraborty—a rarity. While most people swerve towards conservative investments, Ritesh and Tanushree are rabidly aggressive. They have invested in 22 mutual funds and don't have a single rupee in fixed deposits. So much so that this ambitious streak has the potential of stopping them from achieving their financial goals—building funds for their son's (and another child's) education and marriages, for retirement and a second house. However, luckily for them, the resources at their disposal are more than enough to take care of their finances and future plans.

The couple got married in January 2007 and have a son, Rishi, who is nearly three years old. They live in Kolkata and have a monthly income of Rs 1.2 lakh, with both Ritesh and Tanushree contributing Rs 60,000 each. The impressive take-home salary has been instrumental in helping the couple make so many investments. "I have been investing in mutual funds since 2005. Initially, these investments were done for saving tax, but as I gathered more information on the market, I increased my investments," says Ritesh. However, almost half of their mutual fund investments are not in the form of SIPs, something that Ritesh wants to rectify.

With a monthly household expense of only Rs 20,000, the couple is left with a sizeable surplus of Rs 1 lakh per month. However, after accounting for the payment of insurance premium, SIP payments and a home loan EMI—they have bought a house worth Rs 50 lakh in Kolkata and will move into it next month—the couple is left with a monthly surplus of Rs 19,422.

Despite the surplus, one area where the couple needs a revamp is insurance, both health and life. Till last month, the couple had a cover of Rs 10.9 lakh, which is less than 6-7 times their annual income, the life cover suggested by experts. A mix of endowment, Ulip and moneyback, these policies are expensive, with a monthly premium of about Rs 10,343. However, Ritesh seems to have woken up to the risk of such a low cover and bought a term plan of Rs 50 lakh last month for 20 years. It costs him about Rs 8,824 per year. This brings the total cover to Rs 61.1 lakh, which is still not enough, considering that they have to repay a home loan of Rs 35 lakh. SKP Securities suggests that Tanushree also buy a term plan of similar size in the near future. It recommends that the couple continue with its endowment, Ulips and moneyback policies as the proceeds will contribute to their most important goals. The couple also doesn't have a health cover, so SKP Securities suggests a family floater plan of Rs 5 lakh, which will cost Rs 583 per month.

Now we come to the most interesting aspect of the couple's investment—mutual fund investments. The couple has invested about Rs 17 lakh in these funds. However, 22 funds can be difficult to handle even for the most seasoned investor. Hence, SKP Securities suggests a more cautious approach for the couple and a redemption of five funds. These include Reliance Regular Savings, SBI Bluechip, ICICI Tax Plan, Fidelity Tax Advantage and Reliance Equity Fund.

The couple must continue investing in seven of the 22 funds in the form of SIPs. These include HDFC Top 200, HDFC Equity G, Reliance Gold Savings Fund, BSL Dividend Yield Plus IDFC Premier Equity Fund A-G and DSPBR Top 100 Equity Fund. HDFC Prudence, a balanced fund, must also be continued as it is one of the best balanced funds in the market.

Ritesh and Tanushree are lucky that they have a high income level and prior investments (especially endowment policies), the two reasons that all their major goals will be met. In order to build a corpus of Rs 42.81 lakh by 2029 for their son's education, they can utilise the proceeds of Rs 3.2 lakh from one of their endowment policies—LIC Jeewan Sanchay.

This will take care of about 20% of the desired corpus. For the remaining amount, they need to invest about Rs 4,603 per month in an equity diversified mutual fund, which will give an average return of 12%. For his wedding, the couple plan to build a corpus of Rs 36 lakh by 2033. The proceeds from LIC Child Career, Aviva Safe Guard, LIC Money Back, LIC Child Career and redemptions from their stock portfolio should be invested in equity mutual funds to help amass the required amount. The couple also wants to save for another child that they plan to have in 2012. For his education, the proceeds from LIC Jeevan Surabhi, Jeevan Sanchay and Money Back, apart from a regular SIP investment of Rs 3,175 per month in a diversified equity mutual fund, will help amass Rs 54 lakh by 2033.

The other important goal for Ritesh and Tanushree is to buy a second house worth about Rs 55 lakh in eight years. This is where all their mutual fund investments will be of use.